Maybe post the two web.configs so we can take a look at what's different?
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Steve LineberryDec 4 '09 at 3:01

@SAV: Please move your solution into an answer and then mark that as the answer. (You will need to wait 48 hours before being able to mark it as the answer.) Thank you and thanks for giving us the solution!
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Alex AngasDec 6 '09 at 7:52

I have seen this happen when you have some Office 2007 products installed along with some Office 2003 products. This may or may not be your issue, but I have seen it fairly frequently. There is a KB article on it from Microsoft, along with a hotfix that must be run on the machine experiencing the issue: http://support.microsoft.com/kb/938888.

Without further information, this would be my first guess as to the issue you are experiencing.

As Lori says this might be caused by Office 2003, and I think it might also be caused by old document formats even with Office 2007 (not sure). In any case you could turn on "Require Check-in/out" and problem should be solved.
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Toni FrankolaNov 6 '09 at 0:02

There is one other instance where this error happens that is not explained here. If you have version control turned on and have not set limits (Major and Minor). Then the upper limit for the drafts (Minor) versions is 0.511 . Once you hit this number you will not be able to check out the document. The reason for this is that the Version number is stored internally on SQL as a 16bit number and since 256 is the largest number for 8bit integers 512 is the largest for 16bit. (Okay that's enough for the technical stuff) To get around this problem just publish the version 0.511 so that it becomes version 1.0 and there your done.

The next thing you should do is set the limits for the major and minor versions.. In my case 200 minors covers about 2 months and 100 majors would help keep that even longer if needed. Then educate your users on the use of Major (Published) and Minor (Drafts). This will help keep your version control managable.